What is discount pricing? Strategy and examples for hotels

What is discount pricing?

Discount pricing is a revenue management strategy where prices are lowered temporarily or for certain conditions to attract guests and boost occupancy rates. By offering discounted prices, hotels aim to increase demand, especially during off-peak periods, without compromising on profitability.

Why is discount pricing used in hotels?

Hoteliers utilise discount pricing to fill rooms during slow seasons, entice loyal customers, or to stay competitive when market conditions change. By understanding and employing discount pricing strategically, hotels can maximise revenue, improve guest satisfaction, and enhance their overall brand image.

Discount pricing strategy examples

Each discount pricing strategy serves a unique purpose and caters to different market demands. Here’s a closer look at how these strategies could be deployed:

• Quantity discounts. Offer lower rates for guests booking multiple rooms, ideal for group travellers or event attendees. Example: A 10% discount for bookings of 5 rooms or more.

• Length of stay discounts: Encourage longer stays by offering lower per-night rates. Example: A 15% discount for stays of 3 nights or more.

• Loss leader discounts: Offer one service at a discount to promote sales of other services, like a discounted room rate to promote spa services. Example: Book a room at a 20% discount and receive a voucher for 50% off spa services.

• Seasonal discounts: Offer special rates during off-peak seasons to attract guests. Example: Winter getaway package at a 25% discount.

• Last minute deals: Offer discounted rates for last-minute bookings to fill vacant rooms. Example: Book within 48 hours of check-in and receive a 30% discount.

• Package deals: Bundle room rates with additional services or amenities at a discounted price. Example: Romance package including room, dinner, and spa service at a 20% discounted rate.

• Direct booking discounts: Encourage guests to book directly through the hotel’s website by offering a discount. Example: Book direct and save 10% on your stay.

• Loyalty programme discounts: Offer exclusive rates or perks to members of your loyalty program. Example: Loyalty members receive a 15% discount on room rates.

• Non-refundable rate discounts: Offer lower rates for guests willing to pay upfront with no refund option. Example: Book now and pay upfront to save 20% on your room rate.

• Event-Based discounts: Offer special rates during local or global events or holidays. Example: Festival special, book during the event and receive a 15% discount.

• Partner discounts: Collaborate with local businesses or online platforms to offer mutual discounts. Example: Show your room key at partnering restaurants to receive a 10% discount on your meal.

Factors that affect hotel discount price

Competition

Competition is a significant factor that influences discount pricing. In areas with a high concentration of hotels, competitive pricing becomes crucial to attract guests. Understanding the pricing strategies of nearby and similar standard hotels can help in setting competitive discount rates.

Analysing competitors’ rates and offerings can provide a benchmark, helping hoteliers devise discount pricing that entices guests while maintaining profitability.

Market demand

Market demand fluctuates based on seasons, days of the week, and during special events. Higher demand usually allows for higher prices, while lower demand may necessitate discount pricing to attract guests.

Monitoring market demand and adjusting discount pricing accordingly can help maximise occupancy and revenue.

Economic conditions

The broader economic climate significantly impacts a guest’s spending capacity. In tougher economic times, discount pricing can act as an incentive for cost-conscious travellers. Conversely, during economically prosperous periods, there might be less necessity for discount pricing.

OTAs

OTAs are a double-edged sword. They can help increase a hotel’s visibility and bookings, but they also add a level of pricing competition. Often, hotels might find themselves needing to adjust their discount pricing strategies to remain competitive on OTA platforms, which usually showcase the lowest available rates.

External events

Local or global events, such as festivals, conferences, or even adverse situations like a pandemic, can significantly affect hotel discount pricing. Events can lead to increased demand, allowing for higher rates, while adverse situations might require discount pricing to encourage bookings.

Keeping a close eye on the calendar and adjusting pricing strategies in response to external events can keep occupancy rates healthy.

Advantages of hotel discount strategy

Drive demand

Offering discounts can significantly drive demand, especially during off-peak seasons. By lowering room rates, you entice price-sensitive guests and generate interest among those who may not have otherwise considered your hotel.

A well-timed discount can fill your rooms, keeping a steady flow of revenue even in traditionally slower periods.

Increase revenue

While it might seem counterintuitive, discount pricing can indeed boost revenue. By attracting more guests through lowered prices, you increase the chances of selling additional services such as spa treatments, dining, or tours.

Furthermore, higher occupancy rates through discounts can lead to more customer reviews and referrals, which in the long run can attract more bookings at standard rates.

Hotel promotion

Discount pricing acts as a promotional strategy, garnering attention and raising awareness about your hotel. Special offers and discounts create a buzz, encourage word-of-mouth referrals, and can even lead to media coverage.

All of this promotional activity serves to enhance your hotel’s reputation and visibility in a competitive market, improving bookings via all distribution channels.

Increased occupancy rate

An obvious benefit of discount pricing is the potential for increased occupancy rates. With more rooms filled, your hotel maintains a lively, inviting atmosphere which in turn enhances the guest experience. High occupancy rates also better position your hotel in negotiations with vendors and partners.

Upselling

Discounts attract more guests, providing ample opportunities for upselling or cross-selling other services. For instance, a guest who booked a room at a discounted rate might be willing to upgrade to a suite or purchase additional amenities like spa services or dining packages, generating additional revenue.

Guest satisfaction

Offering value through discounts significantly contributes to guest satisfaction. Guests who feel they received a good deal are likely to have a positive perception of their stay, which can lead to favourable reviews and repeat bookings.

A satisfied guest is also more likely to recommend your hotel to others, expanding your customer base.

Seasonal demand

Discount pricing can help navigate the ebb and flow of seasonal demand. By offering discounts during low-demand periods, you can maintain a steady stream of guests year-round. This strategy helps in smoothing out revenue streams, making financial planning and management easier and more predictable.